Forecasts of the Scottish economy [February 2012]

The Scottish economy is likely to have seen negative growth in the final quarter of 2011. Further, the Scottish labour market has displayed weakness over the last few months as unemployment has increased and employment fallen. The outlook for domestic spending looks bleak in the short term due to slow wage growth and is further weakened over the medium term by reductions to household benefits, despite reductions in inflation easing some of the squeeze on real incomes. Prime export markets for Scottish goods and services appear to have returned to recession, with Euro Area forecasts cut radically since our last forecast. Without a switch of exports to fast-growing markets, or a (increasingly unlikely) quick return of stability to the Euro Area, the prospect for an export-led recovery appear limited in the near term. Job numbers are forecast to decline through 2012, recovering slowly through 2013 and 2014, with unemployment forecast to be 9.8% at the end of 2012 and decline from there to the end of the forecast window.